This article first appeared in the August, 2004 edition of the Jacksonville Business Journal
Lean thinking arrived on the American business scene during the height of the automotive competitive wars with Japan. The core principle is that no work should be done unless it is going to create customer value. Work should be performed in the simplest, most efficient way to maximize the smoothest throughput of product and services from you to the customer.
Lean Thinking in Action
This concept sounds like common sense. But it is actually not how business usually works.
Here's a simple example. I worked with an insurance company that specialized in property insurance. Their average claim processing time was six weeks, creating lots of unhappy customers. When we researched the process, we discovered that a typical claim was actually worked for a total of three hours in that six week period. Most of the time it was sitting in someone's "in basket" waiting for the next step. The process had become increasingly complicated over time, with more people involved through multiple re-organizations. By applying lean thinking principles, the process was reduced from six weeks to three days - with no additional staff or automation.
Here's another example. A large truck manufacturing company inspected every returned part from its dealers against initial orders and inventory before a credit would be issued. Implementing this process cost the company millions of dollars each year. The dealers were irate because of the required justification, the time lag, and their carrying costs.
We discovered that this practice had been put in place many years before by a warehouse manager who mistrusted all dealers and wanted a 100 percent check. We then learned that the value of 90 percent of returned parts was less than the cost of this review, without even considering the impact on dealer goodwill. The company changed its policy - no returns are checked unless the part exceeds a certain dollar value. The result? The process was dramatically simplified, weeks became days, dealers were happier, and profitability increased for everyone.
The Core Principles
The core principles of lean thinking are based on maximizing customer value and throughput. The faster you can process an order, build a product, or provide a service the less it costs to provide and the happier the customer. Fewer hands touch it and fewer mistakes are made. Lean thinking focuses on streamlined work processes, reduced inventory, no backlog, maximizing throughput, and eliminating bureaucracy. Examples of lean thinking programs include, JIT, Kaizen, MRP, Total Quality, Re-engineering, Six Sigma, ERP, and Theory of Constraints.
Here's another example. A man was having a house built in Jacksonville. He was amazed by the number of field mistakes being made by the various trades. When he pointed them out, the tradesmen did not correct their errors. Even though they knew the work was wrong, they continued because they knew that they would be called back and paid to re-do it. In the end, the customer got his house - but certainly not on schedule. And somebody paid for that re-work. The company that builds that same house without the rework, can offer the same house for less money and make more profits.
Applying Lean Thinking
Companies of all sizes can apply lean thinking principles in four ways.
- First, look at your core work processes. Are they streamlined? Is the work touched only once? Are the steps integrated without any difficult hand-offs? Are responsibilities clear?
- Second, look at your measurement systems. People respect what you inspect. If you are measuring something, people are paying attention to it. But does the measurement create real value? Are you measuring office expenses while service times are running out of control? Are you measuring absenteeism but haven't noticed that your turnover is killing you? Measure what matters - and only what matters.
- Third, look at your organizational structure. Is it simple? The more complicated the organization, the more waste and bureaucracy. Matrix organizations are very likely candidates for simplification.
- Finally, avoid multi-tasking. When people can focus on one task, get it done and hand it off their work is better and done faster. When too many simultaneous tasks or projects are being juggled they will all be delayed.
Lean thinking can be applied in many different ways, using lots of different tools. The key to lean thinking is always to ask these fundamental questions: Why are we doing this? Is it adding value to our customers or simply meeting some internal need? If you can't see the value, it is probably not serving your customer, or your organization.
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